Bitcoin RSI Trading Strategy: Assessing RSI’s Effectiveness in Crypto Trading (Backtest & Trading Rules)
Does the RSI Indicator work on crypto or Bitcoin? Bitcoin and other cryptos are attracting many traders and new investors, and the crypto daily volume is rising significantly, probably draining resources from the more traditional stock trading arena. The crypto market is a completely new market that is quite different from the traditional equity markets. One reason for the difference is that crypto is new and lacks a long history, and the other is that crypto is an asset that doesn’t produce tangible values as ownership of equity does.
The RSI indicator seems to work on Bitcoin and cryptocurrencies. RSI as a momentum indicator shows some real promise in cryptos, but the traditional mean reversion strategy of buying the dip and selling strength doesn’t work on Bitcoin and cryptos.
Keep reading to learn more about our tests.
What is the RSI indicator?
We have previously written about the RSI indicator. We recommend reading this article to make sure you have a firm grasp of what the indicator actually measures:
RSI measures both the speed and magnitude of the price movements relative to itself. It oscillates between 0-100 where 0 is “oversold” and 100 is “overbought”.
To buy low RSI readings and selling high RSI readings have worked well on US equities, but have been less successful on forex and commodities. Does it work better on Bitcoin and cryptos?
Does RSI work on crypto or Bitcoin trading? Is RSI good for crypto?
We first test for mean reversion: buy low RSI readings and sell high readings.
RSI on crypto and Bitcoin as a mean reversion indicator
We optimized three tests by using three variables and enter and exit at the close: